Effect of Spillovers of Foreign Direct Investment on Energy Intensity Convergence in Provinces of Iran

Energy intensity is an important indicator of energy consumption assessment and its reduction is one of the goals of policymakers and planners in countries. Developing effective policies to reduce energy intensity requires a thorough study of the factors that affect it. In this study, the effect of foreign direct investment on energy intensity convergence by Iranian provinces using spatial econometric technique and panel data of 30 provinces of the country from 2010 to 2015 was studied. After confirming the spatial dependence by Moran and Panel (robust) LM and LM tests, the absolute and conditional convergence of "β" has been tested. According to the results, the absolute convergence of energy intensity in the provinces of Iran was confirmed. This means that the rate of decrease in energy intensity in provinces with higher energy intensity is higher than the rate of decrease in energy intensity in provinces with lower energy intensity. To investigate the conditional convergence, the foreign direct investment variable was added to the model. The results indicate a conditional convergence of energy intensity in the provinces of Iran, as well as a decrease in energy intensity with an increase in foreign direct investment. In fact, foreign direct investment with the introduction of new production technology increases the efficiency of the use of production inputs such as energy, and this leads to the convergence of energy intensity among the provinces of Iran. The effects of the spillovers of foreign direct investment on the convergence of negative and meaningless energy intensity can be attributed to the low level of foreign direct investment attraction and its non-distribution at the provincial level. In general, the increase in foreign direct investment in a particular province causes the convergence of energy intensity and its spillovers effect potentially causes the convergence of energy intensity in the provinces of the country.